European Central Bank (ECB) Interest Rate Preview: Focus on the Euro
The European Central Bank will put the market focus on the Euro on 23 January 2020 as it provides its interest rate decision and rate statement for the first time under new Chair Christine Lagarde. No significant changes are expected. The ECB initiated a renewed stimulus package in September 2019 and has continued to maintain its negative interest rate trajectory.
The rate statement will allow investors to feel out the language of Christine Lagarde in referencing strategic decisions by the ECB. Of particular interest would be the new definition that the ECB attaches to its inflation target. Previously, the objective was to keep inflation at or below 2%, and any push above this triggered a hawkish response, especially under Jean-Claude Trichet. What would be the definition under Lagarde? Thursday’s rate statement gives investors a chance to find out.
No changes are expected to monetary policy on Thursday. As such, I expect the EURUSD to trade along the technical lines defined on the daily chart. The price action continues to trade within the rising wedge, although the EURUSD was flirting dangerously with a breakdown. Today’s upbeat ZEW report has staved this off…at least for now. The pinbar that marked the ZEW-induced pullback tests both the wedge’s lower border and the 1.11023 price level as resistance. If the downside resumes following a double candle close below these borders, the EURUSD could make a downward push towards 1.10663 or the Nov 2019 double bottom at 1.09332.
On the flip side, if price can get back into the wedge, then 1,11667 (Oct/Nov 2019 double top and 15 January high) could become the next upside target on the way to the opposing wedge border.